Real Estate & Taxes
The main reason many people decide to invest in home real estate is so that they can have a home to call their own. A few other people invest in real estate so that they can have a secondary home to use during vacation or to rent to other family members who need a stable place to stay. Many of these people do not realize what a positive influence residential real estate can have on income taxes.
Real estate can give individuals a chance to receive great tax breaks. These tax breaks can help home owners get a bigger, better refund or at least keep them from owing a large amount of money each year. The government has allowed for a variety of tax deductions that are only available to residential real estate owners to help encourage more people to purchase homes.
One of the largest tax breaks home owners receive is the ability to deduct their mortgage interest. Each years home owners can right off all of the interest they have paid on their home during the years. This is usually thousands of dollars for the average person and all residential real estate owners are able to deduct up to 1 million dollars in mortgage interest each year.
Another great deduction available to real estate owners is property taxes. Most states require home owners to pay taxes on their property or land each year. In some states this tax even includes vehicles but the taxes paid on homes and land can be in the thousands. Home owners are no able to deduct the money paid in property taxes each year. There is additional property tax bonus that many new home owners forget. The government allows new home owners to deduct the taxes that the home seller paid in advance that were applied to your property tax debt. This amount of property tax paid by the seller can be deducted by you, the new owner, even if you did not reimburse the seller.
In addition to allowing home owners to deduct their property taxes and mortgage interest the government also helps new home owners avoid certain penalties. For most people who borrow against their retirement or receive any sort of early disbursement from their retirement or pension plans there is a tax penalty. This penalty is usually 10% of the amount that was disbursed in addition to the taxes already taken from the amount that is disbursed. To help encourage new home ownership some of these penalties can be avoided if the money is used to purchase a home. The government will allow up to $10,000 to be disbursed from retirement or pension plans without any additional penalties other than taxes already removed as long as the money is used to purchase a home.
The benefits of investing in a home are many. Even though purchasing a home can be a scary first step to many first time home owners the end result is not limited to having a place to call your own. Now you will be able to get a larger tax refund each year or avoid having to pay the government a large amount of money simply because you are paying a mortgage instead of rent.